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Sir i am stuck in part b where we are asked to calculate maximum premium payable in each case …when calculating premium for hav co what i am thinking is to calculate the combined co value by add together method which says that
PreAcquisition value of buyer xx
Preacq value of seller xx
Add synergy benefits xx
Comined co valueSo how i did is 22176+5716.8+140= 28032
But this is not the right answer when i saw back why they have calculated the combined co value by adding PAT WITH SYNERGY BENEFITS and then multiplying by merged co PE ratioYou will have to tell me which exam the question is from. I do have all the past exams, but I certainly cannot remember the name of every question in every exam 🙂
There are two problems in what you have done.
Firstly, the PE ratio changes, and this on its own will affect the values of the companies.
Secondly, even if the PE ratio was not changing, then the total value would indeed increase simply due to the 140, but it would be the benefit resulting from 140 per year. 🙂
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